Charlotte Nelson, finance expert at Moneyfacts, said the scheme provided a significant boost to the market, not only by increasing product availability but also as a catalyst for mortgage competition in the first-time-buyer market.

She said: “Back in January, the average two-year fixed rate at 95% loan-to-value reached an historic low. Since then, the rate has shot back up dramatically, effectively cancelling out any gains made in the past year as the two-year average now approaches April 2016 levels.

“This increase to the average two-year fixed rate at 95% LTV is in part due to the current uncertainty in the market, particularly the inflationary pressures. As inflation rises, the probability of borrowers defaulting also rises, due to household expenditure being adversely affected. This makes the low rates seen previously unmaintainable.”

Fierce competition

Nelson said providers outside the H2B scheme had to compete fiercely with the H2B scheme, pushing rates ever lower and slowly taking on the extra risk that those in the scheme did not.

She said: “As these providers are now no longer competing with H2B deals, this may be pushing rates up as well, with these lenders no longer needing to sacrifice their safety margins to remain competitive.”

David Sheppard, managing director of Perception Finance, said although the market had seen an uplift in 95% LTV rates of late, they were still good compared to where they had been historically.

“Three or four years ago, even 90% LTV rates were about 7%, so while they may have gone up, 95% LTV rates are still not particularly bad at the moment.”

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